2014 (10) TMI 569 - AT - Service Tax

Valuation of service - Inclusion of cost of spare parts or accessories or consumable such as lubricants and coolants provided/used during servicing of the vehicles - Authorized Service Station service - Held that - Board Circular No. 96/7/2007-ST dated 23.08.2007 states that service tax is not leviable on the transaction treated as sale of goods and subjected to levy of sales of sales tax/VAT. It is seen that as recorded by the Commissioner (Appeals), respondents were able to establish that amount on which the impugned service tax has been demanded actually pertain to the sale of spare parts/accessories/consumables like lubricants etc. by showing copies of the VAT assessment orders for the financial years 2006-2007 & 2007-2008. It would clearly entitle them to the benefit of Notification No. 12/2003-ST. Indeed even the provisions of Section 67 lay down that the value for the purpose of levy of service tax is the gross amount charge for taxable service - Decided against Revenue.

Issues:
- Interpretation of taxable value under Section 67 of the Finance Act
- Applicability of Notification No. 12/2003-ST on spare parts and consumables
- Treatment of spare parts as inputs for service tax calculation
- Burden of proof on the respondent regarding sale of spare parts
- Relevance of VAT assessment orders in determining service tax liability

Interpretation of Taxable Value under Section 67 of the Finance Act:
The case involved a dispute regarding the taxable value for service tax calculation by an authorized service station. The appellant contended that the service station did not include the cost of spare parts or consumables in their service tax liability calculation. The Commissioner (Appeals) set aside the original order, citing provisions under Section 67 of the Finance Act, which states that the taxable value is the gross amount charged for the taxable service. The appellant argued that the value of spare parts and consumables should be included in the assessable value. However, the tribunal found that the service station had demonstrated through VAT assessment orders that the amount in question pertained to the sale of spare parts and consumables, entitling them to the benefit of Notification No. 12/2003-ST. Consequently, the tribunal dismissed the Revenue's appeal, upholding the Commissioner (Appeals) decision.

Applicability of Notification No. 12/2003-ST on Spare Parts and Consumables:
The tribunal considered the applicability of Notification No. 12/2003-ST, which exempts the value of goods and materials sold by the service provider to the recipient of service from service tax. The appellant argued that spare parts and consumables should be included in the assessable value for service tax calculation. However, the tribunal referred to Circular No. 699/15/2003-CX, stating that the sale of consumables during the provision of service is akin to the sale of parts or accessories. The tribunal noted that if the value of such consumables is shown separately, it should not be included in the taxable value. Relying on this interpretation, the tribunal upheld the exclusion of spare parts and consumables from the service tax calculation.

Treatment of Spare Parts as Inputs for Service Tax Calculation:
The appellant contended that spare parts used by a service station should be subject to service tax, including the value of the spare parts raised by the service provider. However, the tribunal clarified that spare parts used in servicing vehicles are considered inputs for providing the service. The tribunal emphasized that the cost of such inputs forms an integral part of the value of the taxable service. Additionally, the service provider is entitled to take input credit for excise duty paid on such parts or goods used in providing the service, as well as service tax paid on taxable services used as inputs for servicing vehicles.

Burden of Proof on the Respondent Regarding Sale of Spare Parts:
The appellant raised concerns about the respondent's failure to provide proof of the sale of spare parts to service recipients. However, the tribunal noted that the respondent had presented VAT assessment orders for the relevant financial years, demonstrating the sale value of spare parts, accessories, and consumables. By substantiating the nature of the transactions through these orders, the respondent was able to establish that the disputed amount related to the sale of spare parts and consumables, justifying the exclusion from the service tax calculation.

Relevance of VAT Assessment Orders in Determining Service Tax Liability:
The tribunal highlighted the significance of the VAT assessment orders presented by the respondent for the financial years in question. These orders played a crucial role in establishing that the amount subject to service tax demand pertained to the sale of spare parts, accessories, and consumables. By relying on these orders, the tribunal concluded that the respondent was entitled to the benefit of the relevant notification and that the disputed value should not be included in the taxable service amount. Consequently, the tribunal dismissed the Revenue's appeal based on the evidence provided through the VAT assessment orders.

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